By Eric Burroughs
NEW YORK, June 21 (Reuters) - In weekly research, Wall Street credit strategists expressed suspicion that the recent lows in spread levels across the corporate universe may be about as good as it gets.
Analysts at Lehman Brothers broke down the largest 100 corporate names in the Lehman Credit Index to see how their spreads stand versus the lows this year, finding that the majority hit year-to-date lows at or before the end of April.
"We view this supportive of our belief ... that (investment-grade) credit is at an inflection point and spreads have reached full capacity," the analysts wrote in a note to clients.
At the same, strategists at Citigroup Global Markets noted that a flurry of positive credit news last week -- strong earnings from Lehman Brothers and homebuilders, earnings affirmations from both Ford Motor Co. and General Motors -- failed to spark hardly any improvement in credit spreads.
"The lack of further tightening in spreads suggests to us that positive fundamentals are no longer providing enough of a catalyst for spreads to move much tighter," strategist Richard Salditt wrote in a research note.
Salditt also pointed to last week's spread changes as being perhaps the lowest volatility all year, thanks to stable equity indexes, sliding equity volatility, rangebound swap spreads and steadily dropping oil prices.
Even the good news from two of the Big Three automakers last week did little to their own credit spreads, Salditt said, as real-money investors shied away and are gradually paring back their positions in the credit of Ford and GM.
"We are probably close to the tight end of the trading range in autos and would begin to consider locking in recent gains," Salditt wrote.
In the credit derivatives market, five-year default swaps on Ford Motor Credit Co., the debt-heavy finance arm of Ford Motor Co., trade about 40 basis points above their lows earlier in the year at 166 basis points. That means it would cost $166,000 to buy default protection on $10 million of Ford debt.
For General Motors Acceptance Corp., the finance arm of General Motors, its five-year default swaps trade around 161 basis points, up almost 60 basis points from the lows in January.